Charles O'Connor Consulting | Flip-flop tax decisions reward
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Flip-flop tax decisions reward

Flip-flop tax decisions reward

15:53 12 October in Business

Flip-flop tax decisions reward J Wray & Nephew, punish Red Stripe

A few days after Finance Minister Audley Shaw attempted to level the playing field on alcohol tax in Jamaica by imposing a tax based purely on alcohol content by volume and ending the unfair advantage that the tonic wine market had enjoyed for seven years, executives at J Wray and Nephew were able to secure a meeting with the prime minister – on a Saturday.

As it was gleaned, the prime minister was moved to seek a reversal in the taxes in favour of J Wray and Nephew, a company 95 per cent owned by CL Financial of Trinidad. It was also determined then that Finance Minister Audley Shaw was not in the least amused. As the liquor giant refused to release its stocks, and bars across Jamaica saw the move as another bungling by the government, Shaw uttered words to one journalist: “Withholding stocks will not deter me.”

More than two Saturdays later, he has been drawn back in line as the flip-flop tax, brought about by a flip-flop prime minister, has been officially imposed. Although Shaw’s initial move was a worthy one – bringing the “tonic wine” market into the tax net for which they had enjoyed a “holiday” for seven years, Wray and Nephew was smart enough to recognise that the liquor-drinking public would see it differently.

“A wah Audley Shaw a gwaan wid? Like ‘im nuh know weh ‘im a do”, one bar owner said to me as I tried in vain to explain the new tax regime to her. Years before, beer manufacturer Red Stripe had been at a disadvantage as the “tonic wine” market ate into their share of the market as these “wines”, some of which had 18 per cent alcohol by volume, gave drinkers a cheaper boost and encouraged irresponsible drinking.

For seven years Red Stripe had paid a tax at a rate which equated to 1000 per cent of what Wray and Nephew had been paying on tonic wines.

To date the executives at Red Stripe have not been as lucky as those at Wray and Nephew. They have not been able to secure a meeting with Prime Minister Golding, on any day of the week, and definitely not a Saturday.

As the chief “mind-changer” in charge of the country’s business, in 1995 Seaga called Golding a vacillator. In May of this year as the streets of Kingston erupted in violence over the Tivoli incursion, a young JLP politician telephoned me early one morning and gave his best concise analysis of his prime minister.

“Whenever a crisis arises, he goes back into his head too many times.”

Well, the prime minister has neutered his finance minister by placing a tax on tonic wines of $960 per litre of pure alcohol while hitting Red Stripe with one of $1130 per litre of alcohol. Unbelievable!

That tax will bring additional hurt to Red Stripe which endured the fall-off in market share as Wray and Nephew made a literal killing by the tax loophole for a full seven years.

In the new alcohol tax regime, it punishes the company which played by the rules but eventually got shafted, while rewarding Wray and Nephew which for seven years must have enjoyed windfall profits from the loophole in what was then an inequitable alcohol tax regime.

As I understand it, Red Stripe is not leaving Jamaica, the land of its flagship brand. What it intends to do – I have been informed – is move its production facilities to another country where its costs will be less as local consumption is expected to fall in light of the increased tax.